Understanding credit card requirements: What you need to apply

Getting a credit card is an important step in your financial journey. And just like looking over your resume before you apply for a job, you'll want to make sure you have the right qualifications before applying for a credit card.

Read on to learn more about how credit cards work and what you'll need to apply.

How credit cards work

A credit card is a physical card that you can use to buy goods or services on credit. It can also be stored virtually in your mobile device's digital wallet. These cards are issued by a lender, typically a bank or financial services company.

When you use a credit card, you're borrowing money from the lender to make purchases. And you're required to pay back at least a minimum amount of what you borrowed every month. The money you don't pay back accrues interest over time, according to the specific card's annual percentage rate, or APR.

Lenders also set a credit limit on how much you can charge to the account. The amount of available credit you have depends on how much credit you've used and how much you've paid back.

Using a credit card responsibly and paying back what you owe in a timely fashion can be a great way to raise your credit score. This can help if you ever need to take out a loan for a big purchase, like a car or a mortgage on a home.

What you'll need to apply for a credit card

When it comes to applying for a credit card, there are certain requirements you need to meet.

In general, you need to be:

• A U.S. citizen or permanent resident.
• At least 18 years old.

And you may need to have:

• A source of income.
• Credit history.

There's a bit more to it, though. If you're under 21, you'll need to show proof that you have enough independent income to keep up with payments.

Of course, there are other ways to build credit. You can take out a loan and make on time payments on it. Or a trusted family member or friend can make you an authorized user on their credit card account.

Also, for most cards, you'll need a credit history. But if you're just starting out and don't have credit history, there are cards that don't require any. You can use these cards to build credit and then, apply for better cards in the future.

Once you choose a card you want to apply for, here's the information you'll need to have ready:

• Full name
• Date of birth
• Social Security number
• Country of citizenship
• Contact information
• Employment status
• Annual income, including nontaxable income like Social Security or disability income
• Housing expenses, such as mortgage or rental payments
• Bank account information

Know your credit score.

Your credit score is a number that lenders use when they decide if they'll approve your loan and at what interest rate. It generally ranges from 300 to 850. The higher the number, the better you'll look to lenders. They'll have more confidence that you'll pay back what you borrow.

Your credit score is based on a number of factors, but the information that goes into developing a credit score is individual to the company offering the score. Factors could include:

• Payment history
• Amounts owed
• Length of credit history
• New credit
• Credit mix (credit card, car loans, utility bills, etc.)

When lenders look at your credit score, they're essentially considering how risky it would be to take you on as a credit customer. Customers with little or no credit history, for example, could be considered higher risk than those who carry balances but consistently pay their bills on time.

If your credit score is less than stellar, you still have credit card options. Plus, there are ways to improve your credit score. You should check your own credit report at least once a year to make sure you know where you stand. This is considered a soft inquiry and won't affect your credit score. Avoid lowering your score by only applying for credit when you need it. The fewer hard inquiries, the better.

What's preapproval?

Dozens of envelopes in your mailbox may declare that "you're preapproved," with little cardboard examples of what the real credit card would look like.

Preapproval means that a lender has done a soft inquiry on your credit report.^{See note1} They've determined that you already meet some of their criteria. But to get the card, you still need to officially apply.

Preapproval offers have some benefits:

1. Soft inquiries don't affect your credit score.
2. You're more likely to be approved by that lender if you apply and all the factors that the lender saw are still the same.
3. You can compare offers before you fill out an application.

Once you apply, the lender will perform a hard inquiry on your credit report.^{See note1} This'll determine if you're approved.

Types of credit cards

Finally, you'll want to consider which type of card to apply for based on your lifestyle, goals and financial situation. These are the four most common types of credit cards:

1. Rewards cards earn points on qualifying purchases, which you can then redeem for gift cards, cash back, travel and more. They typically have annual fees and a higher APR.
2. Cashback cards earn cash back on qualifying purchases and may also have a higher APR.
3. Low-rate cards have a lower APR, and usually don't have fees. They typically don't earn any rewards or cash back with purchases.
4. Secured cards usually have tighter spending limits based on a deposit you make with the lender. These cards also don't typically earn any rewards or cash back with purchases.

Each type of card has its perks and purpose. Pick one that's right for you and keep growing your credit. You can always apply for another card down the road if it's really needed.

Credit card FAQ

Q: If I only pay the minimum on my card each month, which type of card might benefit me the most?
A: Since interest will compound onto the monthly balance you carry, a low-rate card is probably the best choice. It'll help keep your total balance more manageable.

Q: If I've never had a credit card before, what should I consider when choosing one?
A: If you're applying for your first credit card, read more about the general types of credit cards so you can choose the card that's right for you.

Q: If I'm paying off my balance every month and want to earn something extra, what factors should I consider?
A: Consider the perks a card offers, such as cash back or discounts on travel. And make sure you understand how to earn those perks and what type of purchases qualify. Some cards target specific retailers or spending categories while others may earn cash back or points on every qualifying purchase.

With any credit card, you'll want to consider things like annual fees and APR. Make sure you're aware of any flat fees and interest charges for cash advances.

Q: I have a big expense coming up that'll take some time to pay back. Would a credit card help?
A: The answer depends on what type of credit card rate you can get. Getting a card with an introductory rate such as 0% for 18 months could work if you pay off the balance during that time.

But if the rate is set to go up after the introductory period and you're not sure you can pay off the balance in time, then it might not be the best option. You may want to compare the rate, repayment period, and any other terms and conditions to a personal loan.

What to do if your credit card application is declined

It's important to know that regardless of a lender's requirements, their decision on whether to approve you for a credit card is not based on your personal information. Creditors are prohibited from discriminating based on race, color, religion, sex, marital status and other personal details, according to the Equal Credit Opportunity Act.

If you're denied, you'll get a letter in the mail explaining why the lender didn't approve your application. You'll also be entitled to request a free credit report from the credit reporting agency that provided the report to the lender.

Also, your credit score might not be the only reason you're denied credit. Look at your full credit report and see where there may be red flags, such as late payments, too much debt or not enough credit history. This'll help you make changes and give yourself the best chance for approval the next time around.

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.